LONDON / RankWire.AI / – The Bank of England has outlined a multi-year plan to reduce its remaining holdings of monetary-policy gilts by September 2034. Under this plan, the central bank will sell £20 billion worth of government bonds annually, while allowing other gilts to mature naturally. This combination of sales and maturities will decrease the portfolio by an average of £46 billion each year. The new strategy replaces the former annual approach to quantitative tightening and offers a clear pathway for the final stage of the programme.
At the time the new framework was introduced in September 2026, the Bank held £488 billion of UK government bonds for monetary policy purposes. It intends to let £222 billion of gilts maturing before 2035 run their course. An additional £120 billion of the longest-dated gilts will remain within the Asset Purchase Facility to support ongoing and future banknote issuance. This leaves £146 billion of gilts maturing between 2035 and 2049, which are set to be actively sold as part of the quantitative tightening efforts.
A new sales model for the £146 billion portfolio has been discussed between the Bank of England, HM Treasury, and the Debt Management Office. Under this proposed structure, the government would purchase the gilts from the Asset Purchase Facility at current market prices. HM Treasury would instruct the Debt Management Office to execute these acquisitions within the government’s existing financing arrangements. The Bank plans to review the progress of this model before April 2027, and a final decision on the direct government purchase approach has yet to be made.
Review of Government Gilt Sales Process Continues
Under the new multi-year framework, the Monetary Policy Committee unanimously agreed to set the active gilt sales at a rate of £20 billion per year. The Bank stated that this pace of sales will be maintained regardless of the final method of implementation, except in limited circumstances outlined by the committee. Meanwhile, sales auctions through the Asset Purchase Facility are currently paused during a review of operational procedures. It is anticipated that detailed operational plans will be published by April 2027, regardless of whether the direct government purchase model moves forward.
The Asset Purchase Facility benefits from an HM Treasury indemnity that covers gains and losses stemming from its operations. From 2009 to 2022, the facility transferred positive net cash flows to the Treasury, reaching a peak of £123.9 billion in September 2022. Since then, cash flows have shifted from the Treasury back to the facility. The Bank has indicated that future cash flows are highly sensitive to fluctuations in interest rates and gilt prices. Additionally, varying unwind speeds do not necessarily influence the total costs over the lifetime on a net present value basis.
Final Stage of Quantitative Tightening Approaches
This updated schedule follows a significant reduction in the Bank’s bond portfolio since the initiation of quantitative tightening. The Bank’s holdings of monetary-policy gilts decreased from a peak of approximately £895 billion in February 2022 to £488 billion by September 2026. During the most recent 12 months, the portfolio shrank by £70 billion, with £21 billion coming from active gilt sales. Bank officials estimate that the process of quantitative tightening has contributed roughly 20 to 30 basis points to the rise in long-term bond term premiums in the UK since its start.
The Bank also maintained the Bank Rate at 3.75% during its September meeting, with a vote split of 6-3 on that decision. The decision to proceed with quantitative tightening was unanimous. The Bank reiterated that the Bank Rate remains its primary instrument for adjusting monetary policy. It also emphasized that gilt sales should be conducted gradually and in a predictable manner. Under the new plan, monetary-policy gilts will be reduced to zero by September 2034, while the separate portfolio of £120 billion supporting banknote issuance will stay outside the quantitative tightening process.